A University of Southern California
academic weighs in
Americans are closely watching market activity before the week's end after the Dow on Thursday took a 500-plus point plummet. Analysts across the country have speculated how the volatility of U.S. stocks will affect (or already have affected) an anemic housing market. The Union-Tribune spoke by phone Friday with Richard Green on this very topic. Green directs and chairs at the Lusk Center for Real Estate at the University of Southern California. (Green's responses have been paraphrased.)
Q: How
will the stock market's
recent volatility affect the housing market in California?
A: I
actually did a study on this though it's about 10 years old. The only place
where this mattered was in the Bay area.
(Because of the area's start-up culture,) people there really depend on their
stocks to have the ability to make down payments, even. How much people sold
stock to make a down payment, in the north the share is higher than in Southern
California. Long story, short: The impact will be seen in the Bay
area. Down in our part, not so much. (Read his research paper here.)
Q: Some
analysts suspect people may start pulling out of stocks and instead invest in
real estate. Is that a sound theory?
A: Sounds
like a good sales pitch...What's happened is the opposite. If the stock market
went up, then investors start looking around for real estate to buy to balance
their portfolio. To say that people will sell stock to buy houses, I kind of
doubt that.
Q: Is the
effect of the stock losses on the housing market more psychological then?
A: The
market reflects psychology more than it draws it. People are in a bad mood for
a good reason. GDP numbers were absolutely horrible. Job numbers were better
than people were expecting. They still aren't great. And clearly we have a
dysfunctional government. Congress approval right now is at 16 percent. So you
put that together, people are in a lousy mood. I don' t think it's just the
stock market.
Q: If
market losses become long-term, what will that mean for real estate?
A: Oh,
long-term. They will show the deterioration of wealth of the country. That
can't be good for housing.
Q: Any
positives?
A: Well,
the 10-year treasury went down on Thursday. That's the only positive. That
drove down mortgage rates. So if you qualify for a mortgage, then it will be
cheaper.
